bond anticipation notes This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you Retained Percentage & Bond Anticipation Notes – Governmental Accounting. Following along are instructions in the video below:
“This presentation. We will discuss the concept of retained percentage and bond anticipation note as as they relate to capital projects for governmental accounting. Any time. We think about capital for governmental accounting.
We want to think about three main areas that will have potential recording in one being the government wide activity that thinking about the entity as a whole on an accrual basis. Then we have the typical funds that we might be dealing with one capital project fund to debt service fund. When we think about the capital project and debt service fund. Those are going to be governmental.
Funds. Therefore on a modified accrual basis as opposed to the government wide activities on the accrual basis. Keeping that in mind let s first talk about the retained percentage. A retained percentage government holds a portion of a contractor s feed to cover any construction issues that may happen so note what we re saying here is that we have a contractor.
The contractor has been contracted to build the capital project. The capital project such as a building such as a bridge. They have done some of the work completed some of the work have build some of the work we pay them for the billing of the work as they go as is the agreement however we don t pay them all of it we re gonna hold on to some of it even the part that they have completed because we want to have a retained percentage and the retained percentage. Then is going to be recorded in contracts payable retain percentage.
So in other words if we think about this process we can think that the first thing that s gonna happen is we re gonna have an agreement or a contract with the contractor in order to build a building or something like that a long term type of project..
When that happens typically in the government wide activity. There s not going to be any transaction. Because we have an agreement. But nothing has been done and the capital project fund.
However we possibly would court record. An encumbrance to show kind of that holding account to show that we do have an agreement and that s going to be a holding account until we re able to record the expenses then the contractor is going to do work they re going to start to construct the building or the bridge or whatever. It is that they re going to construct because it s a long term project though they re gonna bill us as we go so we re gonna have progress billing as they construct the building and we re going to pay them as so they re gonna bill us as they go when they give us the bill for work it has already been done we then oh them for the work that has been done and the government wide activities will credit the liability for the contracts payable. We owe them and will will debit the fact that we have the building in process work in process with regards to the government wide type of activity.
The acid that s being pur that s being made by the contractor then of course. We ll pay them once we pay them we re going to remove the cash we re going to credit cash and we ll debit the contracts payable. But we re not going to pay them all the money even though they have completed the work up to that point in time of what s in the contracts payable. We re gonna retain some of it keep some of it and we re gonna keep some of it in case.
There s a future problem and hopefully in order to retain the contractor to make sure that they complete that the project. So therefore the liability of the contracts payable is just basically a liability type of account. The liability is reduced when the amount is paid to the contractor or used to satisfy a problem with construction. So if there s any kind of problem.
That s why this is here..
We re gonna have to pay for it we re gonna say that s okay we ve retained some of it we re going to pay for any kind of problems with the retained percentage or we ll pay it to the contractor. When it s due to them at the end of the project typically is going to be the term so we re gonna say hey we re gonna hold onto a retainer and we know you ve earned it we re gonna hold onto it until you complete the project and then if there s no problems related to the project. Then we ll pay you out that whatever s owed to you at that time plus. The amount that we have retained now we ll discuss a bond anticipation note payable.
So if we think about a bond anticipation note payable. This typically takes place we can think about a situation. Where we have a long term type of contract or construction project that we want to make again. We want to make a building.
We want to make a bridge and we need to finance that we re gonna finance it with a bond so we re gonna finance it with a bond however it takes a while to get the bond in place. The complexities of setting up the bond might take a while we might want to start the construction project. Now and therefore. We might set up a bond anticipation.
Know and a bond anticipation note. Anticipating the fact that we will be able to finance. It with the issuance of a bond shortly therefore the bond anticipation note. Payable is a four of temporary funding.
While the complexities of dealing with the issuing of the bond is handled..
So we re gonna say hey we need some short term funding now. We re gonna issue a bond. We ll have the bond payable. Soon right now we need some funding to get started on the project.
Now the funny thing about a bond anticipation note. Payable is that you would think it s gonna be short term in nature and it typically is because we re gonna have this short term note until we finished the process of financing. The bond once we issue the bond in other words we re gonna pay off this short term bond anticipation note payable therefore you would think it would go on the books as a current liability. However we might think that it should go on the books as a long term liability.
Because in essence. We re having that this this loan short term bond payable. That s there in order to have enough long term financing that will result once we issue the bonds so there s two kind of issues. We have here one is in the government wide type of activity.
Which is on an accrual basis. Where we have short term and long term activity in terms of payables should we record it in the short term or long term or current or long term liabilities. Within the government wide type of activities also we have the fund activities when we consider the bond anticipation note. Payable with regards to the funds.
We might think we ll under a modified accrual basis..
If it was short term or current. Then it should be recorded on the funds and typically we re gonna say well. It doesn t really make sense for us to record the bond anticipation note. Payable on the fund accounting.
Even though it s short term because in essence. It s there to finance long term debt because it s gonna be paid off once we issue. The bonds. Which is gonna be a long term debt so for that reason it may record it out in terms of long term.
If the following are met one all legal steps have been done to finance. The bond. Anticipation. Note.
And to intent is supported by an ability to consummate refinancing. The short term. ” ..
Thank you for watching all the articles on the topic Retained Percentage & Bond Anticipation Notes – Governmental Accounting. All shares of newyorkcityvoices.org are very good. We hope you are satisfied with the article. For any questions, please leave a comment below. Hopefully you guys support our website even more.